Between the fiscal years 2022–23 and 2024–25, Kathmandu’s current-account balance performed a feat worthy of Wall Street’s envy, flipping from an eight-month deficit of NPR 32.4bn to a surplus of NPR 180bn. This might at first glance look like the textbook definition of a turnaround. The International Monetary Fund, with its hawk-like vigilance, may well have raised an approving eyebrow. Yet peel back the layers of this apparent success and the situation is less a genuine recovery and more a fragile balance threatened by deep structural weaknesses.
The headline surplus conceals an economy propped on two rickety stilts: remittances from a vast diaspora and a central bank hoarding foreign reserves with the zeal of a miser. The goods account meanwhile gapes like a wound. Imports outpaced exports by a stonking NPR 940bn in 2024–25, a deficit that speaks volumes about the country’s trade dependency. Petrol alone, a commodity whose price gyrations unsettle emerging markets, accounted for NPR 157.9bn in imports. Add to this the glittering allure of gold imports, a traditional safe haven in volatile times, and the outflows shimmer but drain nonetheless.
So how does Nepal square that imbalance? The answer is a tsunami of remittances: NPR 1.05tn, roughly one quarter of GDP, flooding in from millions of Nepalis labouring in the Gulf states and Malaysia. This diaspora’s sweat is the lifeblood of its foreign-exchange coffers. Yet this boon is no unalloyed blessing. These funds largely finance consumption, not production. They feed a growing appetite for imported smartphones, foreign education, lifestyle upgrades. Outward remittances for overseas studies alone hit NPR 85.8bn. What appears as an inflow funds an outflow, a closed loop of dependency rather than a virtuous economic cycle.
If goods trade is a leaky bucket, services present only a trickle of relief. Tourism—a sector that might have been the country’s promised land given its Himalayan grandeur—nets a paltry NPR 56.7bn in inbound foreign exchange. The figure is dwarfed by payments for Nepalese travelling abroad, predominantly students. The IT sector, a rare hope, contributes a tiny NPR 10.7bn surplus but is overwhelmed by deficits in transport and insurance services. As one wry economist in Kathmandu quipped, “Nepal is not earning foreign exchange. It is renting it”.
The financial account adds to the puzzle. Foreign direct investment, the canonical driver of industrial transformation, is anaemic, registering a net outflow of NPR 5.5bn in 2024–25. Loans and trade credits siphon off NPR 68bn a year. Yet curiously the central bank’s foreign-exchange reserves ballooned by NPR 307bn. The mechanism was a mercantilist defensive playbook: hoarding dollars to prop up the rupee. This strategy buys currency stability and fends off creditor panic, but it is at best a cosmetic balm for a deeper malaise: the economy’s glaring absence of productive capacity.
Complicating the picture is the category of “net errors and omissions”, a catch-all line item rocketing to NPR 46.9bn. In Nepal’s context this is less an accounting curiosity and more a window into the shadowy underworld of informal-cross-border trade with India. Smuggling, under-invoicing and unrecorded transactions haunt Kathmandu’s books like spectres, rendering official statistics a poor guide for policymakers manoeuvring choppy economic waters.
For now this fragile surplus affords the country a temporary reprieve: sidestepping the IMF’s conditional lending programme and shielding the rupee from destabilising volatility. But the durability of that equilibrium is dubious. Remittance flows are hostage to global-labour-market shifts and geopolitical shocks; Sri Lanka’s recent economic implosion provides a warning. Central-bank reserves, no matter how fat, are finite, more stopgap than structural fix.
The government unsurprisingly trumpets “resilience”. This so-called resilience is little more than dependence on migrant labour and central-bank intervention. Without bold reforms to boost exports, revivify domestic industries and lure big foreign investment, Nepal’s balance-of-payments “miracle” risks evaporating faster than morning mist on the Annapurna.
At the end of the day Kathmandu’s shiny economic headline is a stunt. The economy is not marching forward. It is wobbling on a wire. The only real unknown is how long before it slips, and what kind of wreckage waits below. ■
